How is social security taxed?

[Bill_Ha]

I am a few years away from retirement, but wondering -- when I go to the Social Security website, it says if I work until I am 67 yrs I will receive X amount and if I work until 70 yrs I will receive Y amount.  When I start collecting Social Security, will I receive the full X (or Y) amount, or when the check arrives will taxes have been taken out of it already? And at what percentage would I be taxed? Are state taxes taken out too? I am single in California.

[rschule1 · Accepted solution]

Hi There:

Please see below link from Social Security

Taxes on Social Security Benefits

[NateTheGrEAt · Accepted solution]

@Bill_Ha Social Security does not withhold taxes unless you ask them to do so. Whether you need to have taxes withheld depends on your other income and if you are having taxes withheld from other income. 

California does not tax Social Security income so there are no state tax implications if you continue to live in CA. Also, Social Security does not offer withholding state taxes in any state. 

I hope this information is helpful.

[xmasbaby0]

California does not tax Social Security.   But your Social Security can be taxable if you have other sources of income.   It is your choice whether you want to have SS withhold federal tax from your benefits.   Some people have tax withheld and some do not.

TAX ON SOCIAL SECURITY

Up to 85% of your Social Security benefits can be taxable on your federal tax return.  There is no age limit for having to pay taxes on Social Security benefits if you have other sources of income along with the SS benefits.  When you have other income such as earnings from continuing to work, investment income, pensions, etc. up to 85% of your SS can be taxable. 

 What confuses people about this is that before you reach full retirement age, if you continue working while drawing SS, your benefits can be reduced if you earn over a certain limit. (For 2019 it was $17,640— for 2020 it was $18,240; for 2021 it was  $18,960.  For 2022 it was  $19,560  —  for 2023 $21,240)

After full retirement age, no matter how much you continue to earn, your benefits are not reduced by your earnings; your employer will still have to withhold for Social Security and Medicare.  If you work as an independent contractor then you will pay self-employment tax for Social Security and Medicare.

To see how much of your Social Security was taxable, look at lines 6a and 6b of your 2022 Form 1040

https://ttlc.intuit.com/questions/1899144-is-my-social-security-income-taxable

https://www.irs.gov/help/ita/are-my-social-security-or-railroad-retirement-tier-i-benefits-taxable

You need to file a federal return if half your Social Security plus your other income is $25,000 when filing single or head of household, or $32,000 when filing married filing jointly, $0 if you are filing married filing separately.

Some additional information:  There are 11 states that tax Social Security—Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont  These states offer varying degrees of income exemptions, but two mirror the federal tax schedule: MN and VT.

[Bozaya1 · Accepted solution]

Hello @Bill_Ha ,

Here is more information if you delay receiving retirement benefits

When you receive your Social Security benefit payment, it is possible that taxes may be withheld, depending on your income level and tax situation. The amount of tax withheld depends on a number of factors, including your filing status, your total income, and the amount of Social Security benefits you receive.

For federal taxes, the IRS uses a formula to determine the portion of your Social Security benefits that is subject to taxation, known as the "combined income" formula. If your combined income (which includes half of your Social Security benefits plus your other income) is above a certain threshold, a portion of your benefits may be subject to federal income tax. The tax rate you pay on your Social Security benefits depends on your total income and tax bracket. Here is more information about the tax rate(s).

In addition to federal taxes, some states also tax Social Security benefits. California is one of the few states that does not tax Social Security benefits, so you will not have to pay state income tax on your benefits.

It's worth noting that the Social Security Administration does not automatically withhold taxes from your benefit payments. However, you can choose to have taxes withheld from your benefits by completing IRS Form W-4V and submitting it to the Social Security Administration.

I hope this helps.

[rjs]

If you do choose to have federal tax withheld from your Social Security payments, please understand that the amount that's taken out is not the final tax on your benefits. It's just an advance payment towards any tax that you might owe on your tax return at the end of the year, just like tax that's withheld from your pay when you are working. The actual tax on your Social Security benefits, if any, will be calculated on your tax return at the end of the year, and cannot be calculated until your total income for the year is known.

[VolvoGirl]

Social Security will probably also deduct Medicare  Part B premiums and Prescription Drug premiums (Part D) unless you pay those separately.  So when you sign up ask them about that.  My 2023 deductions are Medicare Part B = $230.80 and Part D = $12.20.